Cotton bracing for March '05

Beware the Ides of March. Industry leaders are hoping it won't be as drastic for them as it was for Julius Caesar, but March 15, 2005, could be a challenging time for U.S. cotton producers.

For openers, there's the anticipated ruling by a WTO panel on the U.S. government's appeal of an earlier WTO finding that the U.S. cotton program injured Brazil's cotton farmers.

The new panel, which was scheduled to hear the U.S. appeal in Geneva, Switzerland, Dec. 13, is expected to issue a final decision on the Brazilian case in mid-March, a National Cotton Council staff member said.

“Council Chairman Woody Anderson and President Mark Lange were in Washington for discussions with the U.S. Trade Representative,” said John Maguire, the NCC's senior vice president for Washington Operations. “They have been very engaged in this process.”

Maguire, speaking at the annual meeting of the Agricultural Council of Arkansas in Memphis, Tenn., on Dec. 3, said NCC leaders are hopeful the Dec. 13 hearing will help the appeal panel resolve the complaint in U.S. cotton producers' favor.

“We have been preparing our defense,” he noted. “The U.S. government is our attorney in this case. Gary Adams (the NCC's vice president for economics and policy analysis), Mark Lange, (attorney) Bill Gillon and others have done fantastic work in helping the USTR get ready for the case.”

In the September ruling, a three-member WTO panel found that U.S. Step 2 payments are prohibited export subsidies, not protected by the Peace Clause under Article 13 of the WTO Agreement on Agriculture.

Some U.S. domestic support programs — marketing loans, counter-cyclical, market loss assistance and Step 2 payments — were found to cause significant suppression of world cotton prices in marketing years 1999-2002, causing “serious prejudice” to Brazil's interests.

NCC leaders have criticized the findings, saying they do not believe the United States or any other WTO member intended that the WTO agreements be interpreted as the panel did. They also cited studies by Texas Tech University and the Food and Agriculture Organization indicating the U.S. cotton program had little impact on world prices in recent years.

“The December hearing will be important, and we will continue to stay involved,” said Maguire. “We will also be looking at some alternatives. The good news is that nothing in the Brazil case requires changes in the farm bill in the short-term.”

Congress is also expected to decide whether the United States will remain a member of the World Trade Organization in March and whether to extend fast track authority for the president in June.

“At the end of the day, the reauthorization of the WTO membership is expected to pass, but the debate will be very intense,” said Maguire. “Anti-globalization groups, environmentalists and others will be making their views known.”

Agriculture will be asked to weigh in on the side of staying with the WTO and extending fast track authority. “The USTR will tell you that agriculture is the key to making trade agreements work,” he notes. “So we will be called upon to participate in that debate.”

Congress could also be settling in to a debate on how to address the federal budget deficit by the time March rolls around. That debate is likely to include budget reconciliation, says Maguire.

“Remember that a budget reconciliation is when the government tries to balance its books,” he said. “The budget committee writes a budget that lists projected outlays. Then you go back to the individual committees that have jurisdiction over those programs and they make modifications to meet the budget committee's instructions.”

The agriculture committees, for example, will be required to reconcile or change farm programs so that the projected spending matches the budget committee's instructions.

“We have some concerns in the budget reconciliation about payment limitations, Step 2 and certificates, Maguire says. “Those are always easy things for people to talk about as ways to reduce outlays. They can pit different groups against each other and small farmers against large farmers.”

Adding to those concerns are media reports such as a Nov. 29 Wall Street Journal article about record farm income.

“They obviously have a different perception about what those figures mean than you do, but this type of article is likely to come up again and again in the budget debate,” Maguire told the Ag Council members.

All of these events are likely to unfold at a time when Nebraska Gov. Mike Johanns, who is expected to be confirmed as the new secretary of agriculture in January or February, may still be trying to select his deputy and new undersecretaries.

“It's very possible that USDA will still be in a state of flux at a time when we need them to be stable,” said Maguire. “It will all make for some very interesting times for those of us in agriculture.”